Topic: Q&A with plain-speaking accountant Emily Coltman

This topic has 10 voices, contains 29 replies, and was last updated by Emily Coltman 45 days ago.

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February 21, 2012 at 10:00 am #6769
San Sharma	Here’s your chance to pose your questions to a no-nonsense accountant that will reply in English, not accountantese About Emily Coltman Emily is Chief Accountant at accounting software company FreeAgent and has spent nearly all of her working life helping small businesses with their accounts and tax. She lives near Carlilse with her husband Matthew and spends part of her time working from home and part in the office. Emily’s book Emily has a book out, Finance for Small Business, which you can buy here. It is – what we’ve come to expect from Emily! – a “straight-talking guide” to finance and accounting. Buy now Video Here’s a video introduction to Emily and her book: Your questions Emily is on hand to answer all of your finance, accounting and bookkeeping questions. Post your questions below, subscribe to updates and join me in welcoming Emily Coltman…
February 22, 2012 at 11:53 am #6999
Emma Jones	M, thanks for agreeing to answer questions from the EN Community. Can I be the first to ask?! Someone asked me at StartUp Saturday if you can register a limited company if you also operate as a sole trader and keep the two going at the same time? Thanks in advance Emma
February 22, 2012 at 3:23 pm #7057
Emily Coltman	Hi Emma, And welcome! If you only have one business which you incorporate (i.e. turn into a limited company), you wouldn’t also be a sole trader. You can though have two separate businesses, one of which is a limited company and the other is a sole trade. I had that for a while – my screencasting business was incorporated but my accounting practice was a sole trade, because it was very small. Does that help, please? M
February 22, 2012 at 8:57 pm #7122
Scott Irwin	Hi Emily, I am self employed (starting out) and I may be in need of a new car soon but I have been looking at a very low carbon emissions fuel economic cars, but I must admit I am confused as to what incentive if any there is in purchasing as a business as opposed to personally but putting down business use. The car would be used for personal use also but hopefully as the year progresses more for work then not. Also is more advisable to purchase at the beginning or end of tax year. I know I need to keep tight records so to speak personal and work usage but that’s as far as I get in understanding before my head explods. thank you in advance Scott
February 23, 2012 at 2:18 am #7146
emma davies	Which way will I be taxed once I am registered as a sole trader, as I also work a part-time job. Will the tax be deducted from my pay in that job?
February 23, 2012 at 7:18 am #7148
Emily Coltman	Hi Scott, Are you a sole trader or is your business a limited company, please? The tax will be different depending on that. Cheers M
February 23, 2012 at 7:21 am #7149
Emily Coltman	Hi Emma, Well done on starting your business! As a sole trader you’ll pay tax and National Insurance on your business’s profit each year on 31st January (and possibly also 31st July depending on how much profit you make). It won’t be deducted from your salary as an employee. That’ll continue to be at the same rate. Does that help please? M
February 23, 2012 at 7:23 am #7150
Scott Irwin	Hi M, Sorry forgot that bit sole trader. Scott
February 23, 2012 at 9:14 am #7154
Emily Coltman	Hi Scott, As you’re a sole trader there’s no legal difference between you and the business – so the tax treatment is the same whether you buy the car using personal funds, or whether you take money from the business to buy the car. You can claim tax relief on the costs of running the car, and also some capital allowances on the cost of the car itself, but you can only claim these on the business part of the use of the car. Purchase at the end of the tax year not the start of the new one and get the capital allowances a year earlier! Does that help at all, please? Thanks, M
February 23, 2012 at 9:38 am #7157
Liz Broomfield	Re Emma’s question: they do give you the option to pay your business’s tax through your PAYE via your employer actually – I turned that down as I preferred to keep the two separate. Good news is that once you go full time self-employed, you don’t lose all your personal allowance to your employed part of your earnings so you feel like you keep more of your business earnings (even though you obviously end up with the same money overall!) Liz
February 23, 2012 at 9:44 am #7159
Liz Broomfield	Emily: a question for you about paying your tax twice a year. I know there is a threshold over which this happens, and the threshold is about the point where you pay £1000 p.a. in tax, isn’t it? What isn’t clear to me, however much I look at the HMRC website, is when this happens. E.g. I have paid under £1000 tax p.a. up to now For tax year 2011-12 I will need to pay over £1000 in tax in Jan 2013. Say my tax for 2011-12 is £1100 Then, will it happen like this: - Jan 2013 pay £1100 tax bill - Jul 2013 pay £1100 again to get ahead of myself for 2012-13 - Jan 2014 submit tax return for 2013-14, find out I have a £1200 tax bill and pay £100 to round up what I paid in July 2013 - Jul 2014 pay £1200 in advance on my 2014-2015 tax bill to reflect what I paid for 2013-2014 or does it all kick in a year later? Does that make sense at all? Thank you! Liz
February 23, 2012 at 9:53 am #7160
Emily Coltman	Hi Liz, You’re right re Emma’s question – you can choose to pay your self-employed tax as a deduction from your wages if you want to, but you don’t have to. You’re nearly right re the payments on account! The threshold is £1,000 tax and National Insurance a year, and you also only have to make payments on account if less than 80% of your income is taxed at source (like employment income, where you receive the income after tax rather than having to pay tax on it separately). In terms of when you make the payments on account: 31st January 2013 – you’ll pay the full £1,100 for 2011/12, having not made any payments on account for that year. 31st January 2013 – because your 2011/12 liability was over £1,000, you pay half of that again, on account for 2012/13. So you’ll pay £550. That makes your tax bill payable on 31st January 2013 a whopping £1,650! 31st July 2013 – you pay the other payment on account, so another £550. 31st January 2014 – you pay the balancing figure of £100 for 2012/13 (£1,200 due less £1,100 already paid on account). 31st January 2014 – you pay £600 on account for 2013/14 (£1,200 / 2), so the total figure due on 31st January 2014 is £700. 31st July 2014 – pay the second £600 on account for 2013/14. Does that help, please? Thanks! M
February 23, 2012 at 10:06 am #7163
Liz Broomfield	Hi Emily, Thank you so much – that explains it all perfectly. Just one question: I usually do my tax return as close as possible to the end of the financial year that it’s for, so I know what I owe in tax (I don’t pay it till the bill comes in Dec, though!). So when I do my tax return for 2011-12 in May this year, will it tell me I owe 1.5 times that or just the amount I owe for 2011-12? And how will I know which it is? I presume the bill that comes in the December will make it clear … Also, what about if your tax bill dips down below the magic threshold? or just goes down a lot? I was working part time this taxt year and earned exactly my threshold, so all of my business income is taxed, which is fair enough. But for 2012-13 I won’t have earned anything as employed so I’ll get my allowances on my business income. So, say I earn £10k per year from the business. In 2011-12 I earn £8k employed (using up my allowance) and £10k in the business. I thus owe c£2500 tax. In 2012-13 I only run the business. I earn £10k in the business. £8k goes on my allowance, so my tax bill is just 25% of £2k i.e. £500. I will pay £1250 on account in Jan 2013 and £1250 on account in July 2013 for the 2012-13 tax bill. But that means I’ve hugely overpaid it. What happens then – do I get a massive rebate in Jan 2014 OR does it realise that’s happened when I submit my tax return for 2012-13 in May 2013 and adjust it then, saving me from having to pay the £1250 on account in July? My apologies if that is too complex a question for this forum, I was just curious. I have enough money to see me through a year in advance of living expenses, but it will be good to know when the pinch time will come! Thank you! Liz
February 23, 2012 at 11:29 am #7170
Emily Coltman	Hello Liz, No problem! 1) If you pay too much on account you will get a refund. Either HMRC will pay you that back in a lump sum or they’ll tell you to take it off your next tax payment. 2) You can apply to reduce your payments on account if you know your business’s profits are going to fall, and here’s the form you’d use to do that http://search2.hmrc.gov.uk/kb5/hmrc/forms/view.page?record=HtoHIJE_f8M&formId=880 Beware though, if you reduce your payments on account too far that counts as an underpayment of tax and HMRC will charge you interest, and potentially also penalties and surcharges. 3) HMRC should send you a statement of account that explains exactly what you have to pay when, including any payments of account. Does that help, please? Thanks, M
February 23, 2012 at 11:34 am #7173
Liz Broomfield	Wonderful and so helpful – thank you. I will certainly recommend you to anyone looking for an accountant!

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